Economists' Outlook

Housing stats and analysis from NAR's research experts.

Instant Reaction: Consumer Price Index, November 12, 2020

The annual inflation rate is decelerating, rising for the fifth straight month in October though at a slower pace as the economy gradually recovers from the COVID effect. Over the last 12 months, the inflation rate rose 1.2%, compared to 1.4% and 1.3% in the last two months respectively. In the meantime, core inflation which excludes food and energy, rose to 1.6%, remaining well below the Federal Reserve's 2.0% core target. The Fed's recent adoption of the average inflation targeting at 2%, which seeks the target over time rather than in any specific month, implies that there won’t be any policy input on prices in the near future.

Meanwhile, the inflation rate has an impact on interest rates and bond yields. Higher inflation tends to raise interest rates and elevate yields. Given that mortgage rates usually track with the 10-year Treasury yields, rising yields can dampen spending by driving up mortgage and other common borrowing rates.

Moreover, one major component of the inflation rate that raises concerns is in housing. Specifically, rents rose by 2.7% over the past 12 months to October. In the meantime, median home prices – not included in the CPI measure – continue to rise due to the combination of very strong demand for housing and limited supply of homes of sale. Housing supply was limited before the pandemic and is even more limited now. Thus, home construction needs to increase further to accommodate housing demand and ease price gains.